According to Reuters, Coinbase’s Chief Legal Officer Paul Grewal stated that Coinbase is seeking approval from the U.S. Securities and Exchange Commission (SEC) to offer “tokenized stocks” to its customers. Tokenization of stocks is expected to enable low-cost, round-the-clock trading and expand investment participation. If approved by the SEC, Coinbase will become a new competitor to platforms like Robinhood.
Tokenized Stocks Are a Key Focus for Coinbase
Coinbase’s Chief Legal Officer Paul Grewal indicated that this concept is a “top priority.” Tokenized stocks refer to the process of converting company shares into digital tokens, similar to the trading methods used for cryptocurrencies. Investors do not directly hold securities but instead hold tokens representing ownership of those securities.
The goal is to integrate traditional financial markets with blockchain technology, providing blockchain-based stock trading services to achieve more efficient, transparent, and liquid securities trading. Tokenized stocks can also reduce trading costs, shorten settlement times, and enhance accessibility for global investors.
Tokenized Stocks Still Require SEC Approval
To offer tokenized stocks in the U.S., Coinbase needs to obtain a “no-action letter” or exemptive relief from the SEC. Typically, companies offering securities trading must register as broker-dealers. The SEC sued Coinbase in 2023 during President Biden’s administration, accusing the company of operating as a broker-dealer without registering. However, the SEC withdrew this case earlier this year under President Trump.
In 2018, Coinbase acquired a broker-dealer, which provided it with the license to offer similar services, but the company has yet to launch any related services. Grewal did not disclose whether Coinbase has formally submitted a request to the SEC or when the product might be launched.
Currently, tokenized stocks are not being traded in the U.S., but several companies are attempting to explore this concept. Kraken announced last month that it would launch a U.S. stock token called xStocks, which will be issued in specific markets outside the U.S.
Enhancing Competitiveness by Utilizing Its Own Base Blockchain
If approved, this move would allow Coinbase to effectively provide stock trading through blockchain technology, competing with Robinhood and Charles Schwab, and potentially opening a new business sector for Coinbase.
Coinbase had previously proposed to tokenize its own stock (ticker symbol: COIN) and trade it using its Base blockchain (a Layer 2 solution launched by Coinbase). Base has already been utilized for other decentralized finance (DeFi) and NFT applications, with the potential to support complex financial products.
Many market analysts and investors believe that Coinbase’s tokenized stock plan could fundamentally change investment methods. For example, Motley Fool analyst Travis Hoium stated that tokenized stocks could alter investment models for public and private companies, enabling 24/7 trading, increasing trading efficiency, and lowering participation barriers.
Bitwise CEO Hunter Horsley believes that tokenization can create a more inclusive capital market, expanding participation in the U.S. public market to more small and medium-sized enterprises, thereby promoting financial democratization.
However, some critics argue that many issues need to be resolved before tokenized stocks can be widely traded. A report from the World Economic Forum last month pointed out that insufficient liquidity in secondary markets and the lack of clear global standards are two major challenges facing the application of tokenized stocks.
Risk Warning
Investment in cryptocurrencies carries a high level of risk, and prices can be highly volatile, with the potential to lose all principal. Please assess risks carefully.